Viva Vacations

The company is making its Las Vegas-based parent very happy.

June, 2000

Since March, seven DC-10s a week have been flying directly to Las Vegas, packed with kamaaina game to spend their dollars gaming. That’s almost 300 people a day who have put out just under $400 each for four nights at a Boyd hotel, air, transfers and three meals a day.

Vacations-Hawaii, a Boyd Gaming Corp. subsidiary, is the only company in Hawaii doing charters to Las Vegas these days. Small wonder that from a combination of wholesale and retail business, doing both charter and non-charter Vegas packages, the company grossed $37 million in 1999 and is projecting sales of $50 million this year.

Boyd bought Vacations-Hawaii, a family-owned business that had already developed both wholesale and retail Vegas packages, in 1995 and started with two charters a week. “If we hadn’t done that, it would have had a disastrous effect on our business,” says Stephen Thompson, senior vice president and director of operations for the downtown region of Boyd Gaming Corp. The economy in Hawaii was suffering, and declining visitor counts translated into fewer seats coming into Hawaii and fewer seats available on major carriers from Honolulu to Las Vegas.

Today, since adding the seventh weekly charter, Vacations-Hawaii is well on its way to quadrupling capacity on its Vegas charters. Yet despite its multi-million dollar sales, Vacations-Hawaii was designed to be a break-even operation from the time Boyd acquired it 1995. Consumers can sometimes end up paying as little as $299 when they redeem Hawaiian Air Makana Checks (an award for Hawaiian Air frequent fliers).

Says Thompson: “It’s an unbelievable deal and we lose money on every charter we sell, but in return, we get a customer who for the most part will stay in our properties a tremendous amount of time and help us on the gaming side, and so that’s really the tradeoff for us.”

It’s also not a great money maker for local travel agents who receive a $20 straight commission for each Vegas charter package. But it does bring customers to them. “The advantage with Vacations-Hawaii is that we can accommodate our passengers. It’s a fast reservation,” says Rachel Shimamoto, manager of Travel Ways Inc. “The disadvantage is that the commission is too low.”

Thompson says the retail side of the Vegas travel business is fully commissionable and he believes Vacations-Hawaii is helping travel agents stay in business in these days of shrinking or disappearing commissions. Close to 39 percent of Vacations-Hawaii’s seats are sold through travel agents and more than 600 travel agents book Vacations-Hawaii.

Hawaii visitors account for anywhere from 50 to 90 percent of the occupancy at the Boyd-owned California, Freemont and Mainstreet Station Hotels. And Thompson says that about half of those Hawaii visitors have come on a Vacations- Hawaii charter.

“We’ve got a lot of people that love the value,” says Vacations-Hawaii Sales Manager Kevin Kaneshiro. “I think Sam Boyd has mastered making the smaller time gambler feel like a big fish in a little pond—Joe Blow from Makiki who really only spends $400 to $600 a trip. Well, OK, he might not feel like a high roller, but the $1,200 player could be a high roller and get a suite at the California Hotel.”

But the profile of the Vacations-Hawaii customer is changing. There are fewer senior citizens, the traditional Boyd staple, and they’re doing less gambling at the Boyd properties. “The challenge for the casino, since the casino does subsidize a lot of this travel is to make sure they get a break-even yield on people playing. So I think we’re going to need to do more educational things in Vegas with the younger gamblers,” says Kaneshiro.

Former Hawaii resident Sam Boyd started Boyd Gaming Corp. in 1975, when he opened up the California Hotel and Casino in downtown Las Vegas. Today the company owns 11 casino and entertainment facilities. Last year Boyd Gaming Corp. (NYSE:BYD) posted gross sales of $987 million, a 1.2 percent increase over 1998. Net income and earnings per share increased 34 percent and 27 percent, respectively.

The company says each of the three downtown properties had record or near-record operating cash flow in 1999. The downtown properties posted net revenues of $218 million for the year (including more than $37 million from Vacations-Hawaii).

Thompson says that Vacations-Hawaii is important to Boyd Gaming Corp. and “extremely important” to the downtown properties he oversees. While the immediate goal is to absorb traffic from the seventh weekly charter and maintain Vacations-Hawaii’s virtually break-even operations, further expansion is on the horizon.

Says Thompson: “I would be surprised if within the next few years we’re not at eight charters. I would be very surprised.”